Home Analysis Currency hedged ETFs

Currency hedged ETFs

by Danijel
US dollar, currency hedged

US dollar

Exchange traded funds are highly liquid securities dealing with commodities, stocks, indexes, bonds or a combination of them. Exchange traded funds own a number of financial products (like bonds, futures, commodities, currencies etc) and divide them into shares. The underlying assets are owned indirectly by the holders; it means individual holders have no claim on the property of an exchange traded fund, but only on a share issued by said fund. What holders are entitled to, however, is their share of the profits from those joint assets. These shares can be traded just like any other financial product (stocks, for example).

Exchange traded funds

It is safe to assume that there is an exchange traded fund for any financial objective imaginable, specializing in just about anything from junk bonds to gold bars to currency exchange. Currency hedged exchange traded funds only differ from other exchange traded funds in the fact that they specialize in currencies. Since only major financial players get to establish or liquidate exchange traded funds, their holders have certain advantages not available to small-time Forex traders: from lower expenses, to better short selling, margin and even access to forwards – currency forwards in this particular case. Currency forwards are something most Forex traders cannot access, and their advantages and disadvantages have already been explained. Suffice to say, you get all the advantages of currency futures, only with lower costs and less regulation. And even if the exchange traded fund is liquidated, its holders are typically entitled to some type of compensation. The shares are turned in and the assets are returned to the authorized participants who created the exchange traded fund for further trading; they take things over from there.

Types of currency hedged ETFs

Currency hedged exchange traded funds usually specialize either in a single currency or a combination of currencies, with the former being the norm. Hedged exchange traded funds typically make more money than non-hedged ones. Multiple currency exchange traded funds tend to limit their scope to an area, like East Asia. Regardless of their type, the primary goal of exchange traded funds is not to make you rich, but to help you stay that way. This is because currency speculation does not make you rich quickly, but it can get you there nonetheless. This new trend of currency hedged exchange traded funds’ popularity definitively has its strong points – one of them is that increased competition is forcing firms to improve conditions and perks, as they have to fight for every client; use this to your advantage.


Currency hedged exchange traded funds are an effective means for ensuring your investment stays safe and profitable. The major financial institutions behind them hold the strings in their hands – and if you suspect otherwise, getting rid of unwanted shares is no more different – or difficult – than any other stock. Overall, they offer better terms than regular funds and with this new craze for them, getting in has never been easier. See the list of best commission free ETF brokers HERE.

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